INTERVIEW-Iceland PM Insists Island's Banks Are Sound

By Adam Cox and Kristin Arna Bragadottir

REYKJAVIK (Reuters) - Iceland's prime minister insisted on Wednesday his country's financial sector was sound, rejecting as "misinformation" a slew of claims in foreign press that its banks are teetering.

Speaking to Reuters on the same day a prominent Icelandic firm announced nearly $1 billion in quarterly losses, Prime Minister Geir Haarde said the Icelandic banking community's fundamentals were good.

"Misinformation is always a serious problem for whoever gets hit by that," Haarde said. "I think the Icelandic banking community has been receiving bad publicity in spite of the fact that all the fundamentals are quite positive and good."

The Icelandic crown this week fell to a record low against the euro EURISK=, knocked by a report in British newspaper The Sunday Times that said Iceland's banking system was shaky.

"Where the bad publicity and bad press come from I don't know," the minister said, speaking on the sidelines of a forum on the hotly debated subject of whether Iceland should adopt the euro.

In a wide-ranging interview, Haarde also said his party was opposed to membership in the European Union, that Iceland was doing what it could to promote more environmentally friendly energy usage around the world, and that Iceland still reserved the right to resume commercial whaling.

But as Iceland's markets have been jolted by a downturn in the global economy, fears have mounted about the possibility of deeper turmoil in the financial sector.

On Wednesday, investment firm FL Group FL.IC said it lost 63.2 billion Icelandic crowns ($934 million) in the fourth quarter, the second firm to post big losses within two weeks.

Like many Icelandic companies, FL owned big stakes in other local blue chips. Such cross ownership has been cited as a chief vulnerability in the Icelandic system because it means that when one company's shares are hit, others are as well.

"It can in some cases be problematic and I think various companies ... have been trying to devolve themselves out of this situation," Haarde said.

Kaupthing KAUP.IC, Glitnir GLB.IC and Landsbanki LAIS.IC are Iceland's three biggest banks, but the main blue chip index is made up almost exclusively of financial firms.

EURO ADOPTION NOT SEEN FEASIBLE

On the question of whether Iceland should ever adopt the euro or join the European Union, Haarde was steadfastly against any unilateral move, and added that his party had a traditional opposition to EU membership.

"I don't think that's a credible or a feasible choice at all," Haarde said of whether Iceland should ever adopt the euro unilaterally, as some have suggested it should.

Technically, Iceland could adopt the single European currency unilaterally , but it would end up without the support of the European Central Bank, he said.